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Near-future quarterly financial projections
- Thread starter luvb2b
- Start date
Fact Checking, are you up to speed on the cobalt debate? It's the more problematic input because of the manner in which it relates to copper/nickel mining economically and also the 50% or so global supply that comes from Congo (which has an erratic government that last I saw was slapping large taxes on foreign cobalt miners). I don't worry about lithium because it's relatively straightforward for price increases to lead to profitable mining. Also it would seem the mining is more straightforward, though I'm less clear about that.
I used to figure Tesla knew all this and planned things out, but the longer I watch the company the more I realize they just jump from one fire to the next.
Anyway, that's not to say lithium isn't problematic as well in theory..
edit: I believe also the SeekingAlpha author Petersen (who is bearish on the company but is fairly detailed and good on his cobalt analysis) has a theory about the actual cathode powder contracts having something like a 300-350k vehicle\year limit. At this point I don't feel I've researched enough to feel 100% confident they can even get up to 500k on account of cobalt.
I used to figure Tesla knew all this and planned things out, but the longer I watch the company the more I realize they just jump from one fire to the next.
Anyway, that's not to say lithium isn't problematic as well in theory..
edit: I believe also the SeekingAlpha author Petersen (who is bearish on the company but is fairly detailed and good on his cobalt analysis) has a theory about the actual cathode powder contracts having something like a 300-350k vehicle\year limit. At this point I don't feel I've researched enough to feel 100% confident they can even get up to 500k on account of cobalt.
Man I'm drawing blanks on how to build a model on whether this move today is bullish or bearish.
I've been assuming that 1/2 of demand is US, 1/3 is for 49k$+ price points. Put those together and you can run through a queue of orders pretty quick. i.e. 400k / 6 is only 67k plus whatever organic demand since which is hard to estimate since things have been so catty wompas.
I did note that if you assume 125$/kWh then this price difference is 60% margin which is approximately my guess for most things. I wonder if it would be logical to deduce from the assumption that battery cell constraints are the motivation rather than demand whether this move theoretically ups total gross profit and I suspect it doesn't using some thumbnail guesses. Shrug... too much guesswork.
I've been assuming that 1/2 of demand is US, 1/3 is for 49k$+ price points. Put those together and you can run through a queue of orders pretty quick. i.e. 400k / 6 is only 67k plus whatever organic demand since which is hard to estimate since things have been so catty wompas.
I did note that if you assume 125$/kWh then this price difference is 60% margin which is approximately my guess for most things. I wonder if it would be logical to deduce from the assumption that battery cell constraints are the motivation rather than demand whether this move theoretically ups total gross profit and I suspect it doesn't using some thumbnail guesses. Shrug... too much guesswork.
ValueAnalyst
Closed
MR will command less margin than LR, but don’t discount the positive impact of higher fixed asset AND labor cost absorption on the rest of the production. If Tesla keeps MR production limited, to say 2k/w, then margins will likely continue to improve.
Singer3000
Member
I haven't seen the underlying contracts but it's quite typical for the pricing basis in long term commodity off-take contracts to be based upon either an index or observable pre-agreed market data point. The "long term" aspect of the contract secures supply but does not necessarily fix the price. And in fact you wouldn't necessarily want Tesla to be fixing the price for a long time anyway - even for non-standard commodities, an auditor would expect you to mark-to-market against an observable price. So this would represent a form of strategic hedging, which may or may not work in Tesla's favour, relative to competitors.
What Tesla should be doing is hedging their short term commodity price risk, so that prices quoted to a consumer upon advertising and eventual order confirmation are not subject to commodity price risk during the production and delivery process. Which they could do either embedded into their supply contracts or using futures. The same is true for FX in fact. It always puzzles me when they talk about profit uncertainty only three months ahead due to FX fluctuations.
Fact Checking
Well-Known Member
So if we exclude high R&D and expansion costs Tesla has such high margins compared to other carmakers that they can easily absorb that risk and adjust pricing on a more leisurely pace. If we look at their quarterly FX fluctuations it's in the -$20m..+$20m range (and often lower), which is maybe 1% of margin. That's a killer factor if your margins are 4-5%, but essentially noise over the long run if you are on their 25%-30% margins.
Also, they have a unique product with no substitute and they are routinely passing external costs to customer prices. (I.e. they are not operating in a commodity market but are a monopoly supplier of premium EVs and can set prices.)
Also, only a few of their key commodities have robust, liquid futures contracts - I don't think there's an overly good market for lithium futures for example? Trading them in illiquid markets is almost always more expensive than assuming the risk of volatility. As of now Tesla is writing their own options contracts and is pocketing the time premium and the MM spread.
The more cynical side of me also suggests that talking about dollar strength and commodities pricing uncertainties gave them an easy excuse to evade questions about some of their (hopefully former?) lack of opex discipline.
That's quite the discount since it only drops about 10kWh in battery or at most $2000 in cost of goods.
Makes sense to drop it. Incoming cash from the feature is likely decreasing with lower take-up as delays mounted. Meanwhile liabilities increased significantly lately from heightened regulatory scrutiny on Tesla business practices and mandatory free replacements costs of insufficiently powerful hardware installed in currently deliverable cars. I am not yet ready to use the f-word on that feature, but FSD certainly not 'right around the corner'. My yardstick is can they deliver something before the first three year leases for AP2 cars are up. If not, I agree it is a very hard case to make that the very first sales pitch was a honest representation of what you could expect as a customer when buying FSD.
Singer3000
Member
GS and others are deffo starting to look at bespoke contracts for lithium. But that’s a tiny % of COGS so who really cares at the moment. I was thinking more of steel, Al, Cu and Ni. Cobalt is a less liquid contract so expensive to hedge through futures. Also not that big a cost component these days either.So if we exclude high R&D and expansion costs Tesla has such high margins compared to other carmakers that they can easily absorb that risk and adjust pricing on a more leisurely pace. If we look at their quarterly FX fluctuations it's in the -$20m..+$20m range (and often lower), which is maybe 1% of margin. That's a killer factor if your margins are 4-5%, but essentially noise over the long run if you are on their 25%-30% margins.
Also, they have a unique product with no substitute and they are routinely passing external costs to customer prices. (I.e. they are not operating in a commodity market but are a monopoly supplier of premium EVs and can set prices.)
Also, only a few of their key commodities have robust, liquid futures contracts - I don't think there's an overly good market for lithium futures for example? Trading them in illiquid markets is almost always more expensive than assuming the risk of volatility. As of now Tesla is writing their own options contracts and is pocketing the time premium and the MM spread.
The more cynical side of me also suggests that talking about dollar strength and commodities pricing uncertainties gave them an easy excuse to evade questions about some of their (hopefully former?) lack of opex discipline.
I am less conspiracy theorist when it comes to lack of fx hedging. I think it’s because Tesla is still an immature company and hasn’t started to do the things that mature companies do to squeeze every drop of margin.
Fact Checking
Well-Known Member
So:
- Tesla and Panasonic achieved a significant cobalt reduction with the 2170 cell chemistry, so their cobalt exposure is lower.
- They also announced that they think they can eliminate cobalt altogether - with a tentative 2019-ish time frame IIRC.
- Tesla will also be able to reduce cobalt price exposure by refreshing the Model S/X on a 2170 base, which I'd expect in late 2019.
Fact Checking
Well-Known Member
So I'm wondering what the advantage of that would be: most of their CoG and labor costs, both direct and indirect, are USD based. (I include China/Taiwan/Korea here, they are largely on slow moving USD pegs.)
Their main non-USD income stream would be Europe, about 25% of their revenue? The long term trends in EUR/USD they can pass through to European customers.
Carmakers in Europe are a lot more exposed to FX volatility, not only is a high percentage of costs USD based, their EUR based revenue is also a minority of sales. So their exposure to FX fluctuations is 3x-5x that of Tesla's - and their margins are 2x-4x lower. This means they are 6x-20x more vulnerable to FX fluctuations than Tesla. (If I got the numbers right - working from memory.)
Tesla is reaping the benefits of an USD based firm in a global economy that is in large part USD based.
"Nonsense by John Petersen" was an old thread title here; suffice it to say that he's made unfounded claims repeatedly -- he dresses them up to look like they're well-supported but they're not.
Singer3000
Member
I guess my answer is, why leave any easy money on the table? Tesla’s business is making cars, not currency or commodity speculation. Costs almost nothing to setup a hedging desk. And the only answer I have is that core management are still spread too thin to focus on it. Makes me wonder what other opportunities there still are to realise $20m savings a quarter. Plenty I reckon, which should be seen as a positive. From a Certain Point of View.
Anyway, running the risk of derailing this excellent thread so I’ll leave it at that. Looking forward to seeing the thread renamed q4-q2 at some point.
ValueAnalyst
Closed
cool thanks, agree with your assumptions if they can hold that level of demand the margin will still improve
big IF on that demand level for P3D and AWD imo
bdy0627
Active Member
I don't understand that either. Tesla has certainly been highly competent in anticipating some things in the future and virtually inept at others. As someone pointed out earlier, the overall picture does not convey a sense of detailed planning, but an approach more akin to simply sprinting forward and trying to put out fires as they spring up. I really wish they spent more time anticipating things and adjusting for them ahead of time so as to avoid so many fires needing to be put out.
